Fast Comment SwedenLast week's data digest and preview of March business sector production

Retail sales catching up with the sector's relatively optimistic sentiment

Cost pressure firming, but last week sent mixed signals

Production growth expected to have shone brightly in March, but clouds are forming on the horizon

Retail sales catching up with the sector's relatively optimistic sentiment

Last week's data showed retail sales picking up in March. The 2.9 percent y-o-y increase was faster than expectations, even compared to our above-consensus estimate. This puts sales growth better in line with the overall sentiment in the sector, which stands somewhat above normal and is further underscored by labour shortages. The pickup in sales was not merely a boost from Easter holiday food sales; durable goods sales increased as well (see graphs below).

Cost pressure firming, but last week sent mixed signals

Wage growth as well as producer price increases are on an upward trend, albeit a slow one. Last week, the January and February outcomes for hourly wages were released, showing more or less a sideways movement at +2.6 percent y-o-y. Moreover, last year's annual average was revised down slightly, to +2.5 percent. This could appear to add to the worries about medium-term inflation undershooting the inflation target, but the data details are quite positive. Now, as opposed to a year ago, business sector wages are driving the overall wage increases. This adds to signs that the economic boom is exerting upward pressure on wages, which we have already found in the National Accounts. Another line of cost pressure indicators sending mixed signals was producer prices. Domestic consumer goods increased at a slower pace than recently, dampened by food products, while the dominant share of consumer goods, imports, picked up on the back of krona depreciation.

Production growth expected to have shone brightly in March, but clouds are forming on the horizon

On Friday, the March data for business sector production will be released. We expect continued robust growth at +4.5 percent, calendar adjusted y-o-y (+0.4 percent m-o-m, seasonally adjusted). The consensus expectation is almost as optimistic (median +4.2 / +0.3). Global growth and trade are supporting export-oriented firms, and overall indicators look strong for another few months. However, clouds are forming on the horizon, with some leading indicators now taking a turn for the worse. Of course, the cooling-off of the construction boom will be one factor dampening production ahead.